Wiseman issues ruling on forfeiture of seized cars

The Superior Court has ruled that the government cannot recover through forfeiture vehicles that were allegedly used as illegal taxis when a bank has interest in those automobiles.

Associate Judge David A. Wiseman said he acknowledges the concern that to automatically place a prior lienholder’s interest before the government’s in every case of forfeiture would “effectively place the Commonwealth in the position of ‘repo-man’ for private banks.”

“However, this problem can be disposed of by considering each innocent lienholder claim on a case-by-case basis,” said Wiseman in his order that granted First Hawaiian Bank’s motion for release of two of four vehicles that the government want to recover through forfeiture proceedings.

Citing a federal court ruling, the judge determined that FHB as an innocent owner is entitled to the vehicles subject to forfeiture to the extent of its contractual net equity in each of the vehicles.

Wiseman ordered the release of the two vehicles—2004 Toyota Corolla and 2004 Kia Rio—directly to FHB.

But the judge ordered that any proceeds remaining after disposition by FHB of the two vehicles like the bank’s net equity interest in the cars, must be remitted to the government, together with an accounting of such transaction.

Court records show that on May 6 and 13, 2005, the Attorney General’s Investigative Unit conducted a sting operation targeting illegal taxis on Saipan. During the operation, five drivers were arrested and their cars were impounded.

The Attorney General’s Office then filed a forfeiture case to recover four of the five cars for the government.

Three of the four vehicles were financed through FHB by installment contracts. FHB claimed ownership of the three cars. The bank informed the court that the owners of the vehicles were in default of scheduled payments.

In October 2005, FHB claimed only two vehicles after the owner of the third car, apparently paid it off and satisfied his obligation to the bank.

FHB, through counsel Thomas E. Clifford, asserted that its interest in the vehicles was protected from forfeiture by their status as an “innocent third-party lienholder” whose interest could not be abrogated without “just compensation.”

The AGO objected to the bank’s claims. It argued, among other things, FHB has not demonstrated that the drivers involved in the alleged criminal taxi operation were driving the vehicles without permission from the bank or the record owners.

In granting FHB’s motion, Wiseman said the government has proffered no facts or circumstances that suggest that the bank was aware or that it willfully remained ignorant of the illegal activity, but such a burden, by law, does not fall on the shoulders of the Commonwealth.

Nevertheless, Wiseman noted, FHB need only demonstrate that they did not consent to such activities in order to carry their burden.

The judge said in support of its innocent owner claim, FHB proffered the installment sales contracts, entered into between the bank and the real owners and signed by the real owners of the vehicles.

Wiseman said the government offered no evidence to rebut the sales contract covenants and representations.

Instead, he said, the government argued that FHB should be charged with the requirement to reasonably investigate prospective borrowers like the due diligence requirement.

But Wiseman ruled that, “imposing such requirement on a party claiming exception from forfeiture on innocent lienholder grounds is overly burdensome, and not required by statute or law.”

The court, he said, cannot constructively hold FHB knowledgeable by their failure to inquire about possible unlawful uses when there were no facts available to put them on notice at the outset.

Wiseman said the connection between FHB and the unlawful activity is far too attenuated to deny the bank its legally secured property interest in the subject vehicles.

FHB as a lienholder, essentially purchased the sales contract from the original financier, Microl Toyota, and had minimal contact with the owners/borrowers, whose involvement in the underlying immigration violations is still unknown.

“It is therefore inequitable to impose such an enormous risk on a lender engaged in a well-established business practice of purchasing sales contracts by depriving them of the innocent lienholder defense on the bases of their failure to perform due diligence,” he added.